SESSION 3. RED FLAGS & Counter Terrorist Financing

Transcription

1 SESSION 3 RED FLAGS & Counter Terrorist Financing 1

2 Exercise 6: Presentation of Buyer/ Applicant Documents Seller/ Beneficiary Document Presenting Bank Nominated or Not If nominated, presentation tolls expiry Issuer 2

3 Presentation of Documents to Confirmer Invoice P.O. Box 293 [City] Bangladesh 2,000 Tea Kettels: (USD USD 50,000 2,000 Toast Ovens (Electronic Appliances): 70) USD 140, Caterpillar Tractors: 150); USD 30,000 Questions? Shipped to Johannesburg, S.A. 3

4 Buyer/ Drawee Exercise 7: Collection Compliance Contract Seller/ Principal $ What do you consider? Collection TBFC Collection Instruction, Draft, Documents Presenting Bank Collecting Bank Remitting Bank 4

5 Bank Collections Remitting Bank: due diligence on Seller Appropriate due diligence on Presenting Bank Presenting Bank: appropriate due diligence on Remitting Bank Presenting Bank: appropriate due diligence on Buyer For Higher Risk Parties: Enhanced due diligence Review: collection instructions & drafts More? 5

6 Bank Collections: What are the Risk Indicators? Risks identifiable before the transaction occurs: Export/import controls not complied with Countries/parties on sanctions lists Risks identifiable before and after the transaction occurs: Anomalies in quantity/price Not normal business of party Illogical means of payment Unexplained third parties Attempt to disguise certain countries involves in transaction 6

7 The Concept FCA s treatment BAFT LIST RED FLAGS 7

8 Suspicious Trade Activities: 1. Transactions inconsistent with customer s business strategy or profile (e.g., a steel company that starts dealing in paper products) or make no economic sense. 2. Customer deviates significantly from its historical pattern of trade activity (in terms of markets, monetary value, frequency of transactions, volume or merchandise type). Who would know? Relationship Manager But do they look at each transaction? 1& 2 8

9 Suspicious Trade Transactions: Transacting parties appear to be affiliated, conduct business out of a residential address, or provide only a registered agent s address Fraud? 4. Customer that conducts business in jurisdictions that are at higher risk for money laundering, terrorist financing, or other financial crimes 5. Customer shipping items to, through, or from higher-money-laundering-risk jurisdictions including countries identified by the Financial Action Task Force as noncooperative jurisdictions as regards antimoney laundering regulations Money laundering risk/ not credit risk FATF List 9

10 Suspicious Trade Transactions Activities/goods that potentially involve a higher risk of money laundering and other financial crimes including activities/goods that may be subject to export/ import restrictions KYC 7. Obvious over- or underpricing of goods 8. Obvious misrepresentation of quantity of goods shipped How Know? 10

11 Suspicious Transactions Payment terms or tenor are inconsistent with the type of goods 10. Transaction structure and/or shipment terms appear unnecessarily complex or unusual and designed to obscure the true nature of the transaction 11. The L/C contains non-standard clauses or phrases or has unusual characteristics 11

12 Suspicious Transactions L/C frequently significantly amended for extensions, changes to the beneficiary and/or changes to payment location. 13. Trade-related documentation under an L/C or documentary collection appears illogical, altered, fraudulent, or certain documentation is absent that would be expected given the nature of the transaction 12

13 Suspicious Trade Transactions The transaction appears to involve the use of front or shell companies for the purpose of hiding the true parties involved. 15. The bank is approached by a previously unknown party whose identity is not clear, who seems evasive about their identity or connections, or whose references are not convincing, or payment instructions are changed at the last minute. 16. Transaction involves obvious dual-use goods. 13

14 Many Banks treat all trade finance as high risk Institute of International Banking Law & Practice 14

15 Enhanced Due Diligence: Review High Risk customer accounts more closely Information to Obtain Purpose of the account Source of funds and wealth Individuals with ownership or control over the account (beneficial owners, signatories, guarantors, etc.) Financial statements Banking references Domicile Business operations, anticipated volume of currency and total sales, list of major customers and suppliers Explanations for changes in account activity Nature of Transaction: Typical? 15

16 Enhanced Checks Ownership & Background of other parties Info re seller from buyer Vessel movement Vessel Name history External sources re warnings or B/L Source & dual use 16

17 More Enhanced Checks Look into price Relationship meetings or visit Post event checks 17

18 Problems Isolated? Technical? Systemic? Recurring? 18

19 Determine Cause of Deficiencies in the Compliance Programme Management failure to assess or appreciate Compliance risks Management failure to create program Disregard of program Training Failure Risks have grown faster than program Policy changes poorly communicated 19

20 "Money Laundering" Making illegally gained proceeds appear legal Integrating the proceeds of crime into legitimate commerce while masking their origins 2016 Institute of International Banking Law & Practice 20

21 Activities That Need Money Laundering Criminal activities Primary objective is financial gain Terrorism Primary objective is to intimidate a population or to compel a government to do or abstain from doing an act Both terrorism and other criminal activities must develop: Sources of funding Means of laundering those funds 2016 Institute of International Banking Law & Practice 21

22 Terrorist Financing Source can be legal funds for illegal uses As well as illegal funds for illegal uses Flip traditional notion of Money Laundering Block and Freeze assets of DT or DTOs OFAC Sanctions in US 2016 Institute of International Banking Law & Practice 22

23 Illegal Sources of Terrorist Financing Kidnapping Extortion Large-scale smuggling Fraud Thefts and robberies Narcotics trafficking 2016 Institute of International Banking Law & Practice 23

24 Legal Sources of Terrorist Financing Community solicitation Fundraising by charitable or relief organizations Donations Government Government Sponsored Organizations 2016 Institute of International Banking Law & Practice 24

25 How to Track CTF KYC/CIP Ongoing: Automated Manual: Red Flags 25